3 Reasons To Buy Into The Market Today

Published in Investing on 29 June 2012

This market is a buy. Here's why.

The stock market, it's fair to say, is in an uncertain mood. And, as in the early days of 2009, just before the market's nadir, daily items of news are having a disproportionate effect on sentiment.

The economy, Greece, banking downgrades, American purchasing and housing surveys -- you name it, and stock prices are reacting, oscillating wildly on euphoria and gloom.

At such times, it's tempting to sit it out, and wait for calmer times before putting more money into market. But that, I think, would be a mistake.

Here's why.

Pessimism abounds

Let's start with why the market is reacting to newsflow, and not shrugging it off. Simply put, investors today are far more pessimistic than they were earlier in the year, when the FTSE 100 (UKX) was within a few points of 6,000.

And pessimistic markets, in short, are buying opportunities. As Benjamin Graham put it: "Buy when most people -- including experts -- are pessimistic, and sell when they are actively optimistic." Or, to cite that other well-known super-investor, Warren Buffett: "Be fearful when others are greedy, and be greedy when others are fearful."

Can the market get more pessimistic still? Undoubtedly. Can people get even more fearful? Of course. But with the market down 10-15%, you can buy today the same shares that you were buying just weeks ago -- but significantly more cheaply.

And as Warren Buffett -- again! -- so memorably put it in a thoughtful article in Fortune magazine a few years back:

"When hamburgers go down in price, we sing the Hallelujah Chorus in the Buffett household. When hamburgers go up, we weep. For most people, it's the same way with everything in life they will be buying ‑‑ except stocks. When stocks go down and you can get more for your money, people don't like them any more."

And unquestionably, the stock market's hamburgers have just gone down in price. AstraZeneca (LSE: AZN), Aviva (LSE: AV), BT (LSE: BT-A), BAE Systems (LSE: BA), Barclays (LSE: BARC) and Lloyds Banking Group (LSE: LLOY) -- undeniably, Britain's blue chips have gone on sale.

That said, only some of those particular blue chips are rated as a 'buy' by Neil Woodford, the subject of a recent special free Motley Fool report: "8 Shares Held By Britain's Super Investor". And others in that short list above, it's fair to say, he wouldn't touch at all.

Which are which? Why not download the report, and find out? As I say, it's free.

Asset class perspective

That said, it's possible to view today's market in a very different light. Namely, this way: if you don't like shares at today's prices, what do you like?

Cash? Real returns are either negative or zero -- and the next move in interest rates is likely to be downwards. Property? You're braver than I am. Gilts? Every bubble has to burst one day -- and we're surely in a gilt bubble. And so on.

On the other hand, decent blue chips are on yields of 5% or so, delivering dividend growth of 5-10%, and offer capital growth into the bargain.

And, what's more, at very reasonable prices. The FTSE 100's price-to-earnings (P/E) ratio yesterday was 9.88, compared to 10 years ago when it was 19.88 -- and that, in short, is one helluva difference in valuation.

Watch-list wonders

Frankly, there's not much point in having a watch list if all you do is, well, watch it.

Or, to put it another way: "When shares on my watch list scream 'bargain', I buy them. What do you do, Sir?," as master investor and economist John Maynard Keynes so memorably didn't quite say.

And with those sentiments in mind, there's one share in particular that I've been loading up on in recent times, having almost doubled my holding this year. What's more, I'll be buying still more of it in mid-July, when I've banked my dividends from Sainsbury (LSE: SBRY), Marks & Spencer (LSE: MKS), GlaxoSmithKline (LSE: GSK) and BP (LSE: BP), and found some more spare cash.

Its name? You can find that out in another free special report from the Motley Fool -- "The One UK Share Warren Buffett Loves". But from the way that Buffett has seemingly been topping up himself in recent times, it's clear that the share is on his watch list, too. The report is free, so why not download a copy now?

Your view?

Of course, not everyone will agree with me. Some of you, as you've explained before, in comments appended to articles like this, are rather keener on property than I am.

But with the FTSE 100 on a P/E below 10, real interest rates largely negative and a wobbly housing market, that's the world as I see it. Comments? That's what the box below is for.

Are you looking to profit from this uncertain economy? "10 Steps To Making A Million In The Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- it's free.

More investing ideas from Malcolm Wheatley:

> Malcolm owns AstraZeneca, Aviva, BT, BAE Systems, Lloyds, Sainsbury, Marks & Spencer and GlaxoSmithKline. He doesn't have an interest in any other shares listed.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

OxonianCambion 29 Jun 2012 , 7:00pm

You forget that today's FTSE 100 is stuffed full of dodgy miners and banks with who-knows-what lurking under the covers so its lower P/E is partly deserved.

One can't just look at PE otherwise one would end up with a hilarious portfolio consisting of AV, RBS & BP.

I am dribbling money into the markets though, just not the FTSE 100. I don't trust myself enough to the wheat and under-priced chaff from the regular chaff, so I do a combination of tracking and paying someone else with a decent plan in an Investment Trust to do it for me.

jeff700 29 Jun 2012 , 8:31pm

A part from the excellent Personal Asset investment trust, gold & silver ETFs, I wouldn't touch the rest of the stock market with a barge-pole.

jerryrc 29 Jun 2012 , 11:00pm

Looking at it another way, with the FTSE on an earnings yield of around 10%, it's valuation implies that corporate profits will never rise again. But even if this were the case, then a 10% annual yield in perp is a fairly adequate return. It's a buy on a range of measures therefore, the only way it isn't is if people are forecasting declining corporate profits in short term, followed by no profits growth ever again....i.e probably the end of capitalism.

gadgetmind 30 Jun 2012 , 4:08pm

The largest investments I'd made over recent weeks have been into RIT Capital, TR Property and Henderson Euro Focus Trust. All were on decent/large discounts to NAV and all are in areas that others are currently shunning.

I do hold some FTSE blue chips that are on decent forward yields, but I bought them last summer when London was on fire and the world was about to end. I'm happy to hold, for now.

TimBlx 30 Jun 2012 , 6:16pm

This article is just a plug for the reports. Could we have some decent content please.

inijames 30 Jun 2012 , 7:28pm

@TimBlx, personally, I can take the occasional plug for reports in return for daily free content!

Chinanigel 02 Jul 2012 , 3:01pm

Ha ha, most of the comments above are just more good reasons to buy, which I have :-)

Arborbridge 02 Jul 2012 , 3:05pm

"Wouldn't touch the rest of the stock market"? "Hilarious shares".
Ooh lovely - must be time to buy then:)

Arb.

dpeddlar 02 Jul 2012 , 3:32pm

I agree with Arb, when everyone else walks away it is time to hold your nose and jump in, given an adequate time horizon that is.

dpeddlar 02 Jul 2012 , 3:36pm

One thing I can say for certain is that - waiting for problems to be solved before investing in shares is another way of saying - waiting for higher share prices before investing, as that's where share prices will be when the uncertainty goes away.

globally 02 Jul 2012 , 3:44pm

Britain's blue chip - Barclays? Only when they split the "casino" from the retail bank. Don't these traders realise the damage they've done to this country's reputation for banking probity or don't they care so long as they can still afford the Bollinger!

wpd88 02 Jul 2012 , 3:48pm

As always from this writer, an interesting article well worth reading - however, I am alone in finding the increasingly frequent insertion of adverts WITHIN the articles intrusive and annoying. Please can we limit such plugs to the end/beginning - it really spoils the flow and detracts from every single article on the website! If they are not careful this will prove so offputting readers will start to vote with their feet.

dpeddlar 02 Jul 2012 , 3:55pm

wpd88 - you are not alone as I agree.

masudbutt 02 Jul 2012 , 4:05pm

What is P/E ratio for Europe?, Thanks.

Arborbridge 02 Jul 2012 , 4:07pm

wpd88, well said. When this sort of thing begins to happen, it feels cynical and you wonder just how much credence you can give to the article. Such a shame that Malcolm has had his arm twisted to do that.
Arb

sippquixote 02 Jul 2012 , 4:11pm

You didn't mention Gold or Gold ETFs to maintain the value of your capital, surely everyone needs a percentage of their portfolio in Gold and/or Silver just to cover the unlikely case of one or more politicians doing something stupid.

ribuck 02 Jul 2012 , 4:16pm

Malcolm, please keep your dignity. Don't let your bosses put ads within your content.

kvet 02 Jul 2012 , 4:23pm

Yes, always a good read, but what about IMPs and BATs?. Stuff the ethics and let people smoke themselves to death. They know they're dooming themselves but it's their choice. Good yields and still plenty of long term cap. apprecn. Bought BATs 15 years ago at £2, now £32. Endlessly rising divi long since paid for the shares.
Chances are won't do as well over the next 15 years, but they'll beat financials, drug co's, and retailers I'll bet.
And dead right about the ads!

anshah 02 Jul 2012 , 10:28pm

When Malcolm Wheatley starts to sound his trumpet for buying shares, it's the best time to go short of the market. Anyone remember his article a few months ago on what he will do when the FTSE crosses 6000? :-)

Arborbridge 02 Jul 2012 , 10:56pm

"When Malcolm Wheatley starts to sound his trumpet for buying shares, it's the best time to go short of the market. "

You've completely missed the point of his investment style. You are perhaps interested in something more racy and short term, he isn't.

TheInsideTrack 03 Jul 2012 , 5:05pm

There is an interesting inconsistency in this article.

Having heard the Fool bang on about 'Buffet's favourite share' for weeks now, I'm pretty sure it's Tesco.

In the blurb Malcolm claims to have 'loaded up' on one particular share, the same share Buffet is buying i.e. Tesco and that he is buying more. Yet at the end of the article we have the following: 'Malcolm owns AstraZeneca, Aviva, BT, BAE Systems, Lloyds, Sainsbury, Marks & Spencer and GlaxoSmithKline. He doesn't have an interest in any other shares listed.' So if it's not Tesco, who is it???

Damages my trust in the articles somewhat. Please correct me if I have somehow misunderstood.

mcturra2000 03 Jul 2012 , 9:44pm

@wpd88 I accidentally hovered over the text for "interest rates", and got an ad for Justin Bieber. Justin-freakin'-Bieber! You guys are pooping me, right? Here, have a video link:
http://youtu.be/aV0y54iYWZg

MDW1954 04 Jul 2012 , 9:06am

Hello TheInsideTrack,

Fool disclosure rules only require me to disclose an interest in shares that are named.

So no inconsistency.

Foolish regards,

Malcolm (author)

MDW1954 04 Jul 2012 , 9:08am

Hello anshah,

With the FTSE at 5960, I don't think that the premise was unreasonable. Do you?

And I'd still do the same today.

And as Arb says, I'm more LTBH.

Malcolm (author)

ANuvver 06 Jul 2012 , 6:43pm

Those folks complaining about the ads:

A journalist doesn't have any say on promotional placements or ads run alongside their copy. And these silly auto-generated hover links indicate to me that those trumpeting the monetisation of online content have a very long way to go indeed...

In any commercial publishing operation, advertising and editorial are separate functions. Although a bit of sharp-eyed sympathetic liaison between the two is necessary to avoid costly embarrassments such as a last-minute switch of content leaving you with a scathing attack on the spreadbetting industry against a paid ad for SpreadEx. (That actually happened to me once, and we had to pulp an entire first edition.)

Ever noticed how the only pages on a newspaper that traditionally don't carry ads are comment and op-ed?

Anyway, as to the content, I'm very much on the long-hold blue chip train. Sure, pessimism abounds, but that doesn't mean we're not going to get rallies and drops (mediaspeak translation - "volatility"), driven by traders with the time horizon of butterflies.

I'm uncomfortable with the FTSE flirting with, but not yet able to snog 5,7. I reckon 5,3 is a more sensible time to start shopping.

Interesting that the markets seem to have sat on their hands following the recent stimulus announcements. The obvious conclusion in that only a total duckpond didn't see it coming, and assets have already been bid up as high as confidence allows. Which would leave us, for now, with more downside potential than up.

Monkeynugget 08 Jul 2012 , 2:04pm

With most economists predicting a large correction in the next few years once the artificial respirator (stimulus) fails to work, why would you buy stocks? wouldn't it be better to hold your money in reserve wait for the pending crash then buy back into the market at a discount

ProfessorMarcus 09 Jul 2012 , 12:10pm

Hi Monkeynugget.

Do you trust economic predictions? How many economists correctlyu predict each downturn and upswing? They must be billionaires by now!

Also remember that some decent companies are paying out 5% dividends so you'd receive an income even if the share price has crashed. As long as the company can sustain the dividend of course.

Regards.

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